Matt Schruers

Yesterday Austin-based Usenet provider Giganews was awarded more than $5.6 million in attorney’s fees and costs by a federal court in California, relating to its lengthy battle to exonerate itself of spurious infringement allegations from serial copyright litigant Perfect 10. The court awarded fees in order to “discourage serial litigants from bringing unmeritorious suits and then unnecessarily driving up litigation costs in order to drive a settlement.” (A statement by Giganews and link to the order are here.)

Represented by “high stakes” IP litigator Andrew Bridges of Fenwick & West, Giganews has been slugging it out with adult content purveyor Perfect 10 since 2011.

An expert panel convened on Capitol Hill this morning, discussing new research on the detrimental effect that regulatory uncertainty has on Internet investment (as well as additional copyright law and policy challenges, which we live tweeted on @DisCo_Project).

The new research quantifies the impact of Internet regulations, including intermediary liability limitations, by showing their effect on early-stage investment. A new report by Fifth Era and Engine finds that legal uncertainties for digital content intermediaries discourage early-stage investment around the world, reinforcing findings from a 2011 report that found early-stage investors in the United States were considerably less likely to invest in new online services exposed to legal risks.

In a similar vein, another 2011 paper found that changes in copyright policy changes could spur demonstrable investment in new online services. Comparing investment in online services in the U.S. and Europe in the wake of the 2008 Cablevision case — a federal appellate court ruling widely heralded as giving additional legal certainty to online platforms — researchers found that U.S. investment increased considerably. In contrast, a follow-up study by the same authors explored the impact of judicial decisions in Europe that increased legal exposure for online platforms, and found decreased investment when applying the same methods.

The Fifth Era report reinforces this conclusion, providing further evidence that additional risk and uncertainty in the online environment decreases investment. This conclusion is not entirely surprising — but the authors’ specific findings provide impressive data on how severely risk can stifle early-stage investment.

At a hearing on Capitol Hill tomorrow, a Senate subcommittee will hear different perspectives on the degree to which competing music publishers should be permitted to coordinate licensing activities through performing rights organizations (“PROs”), such as ASCAP. Music publishers have expressed a desire for fewer antitrust constraints on their coordinated behavior, while users and distributors of music will call for greater transparency in the music marketplace.

The hearing occurs during an ongoing Justice Department review of the consent decrees that govern PROs.[FN1] Music publishers and PROs are presently subject to oversight to the extent that PROs coordinate behavior among publishers who ostensibly should compete with one another. Competitor coordination usually violates antitrust law, but because collective licensing also helps reduce the high transaction costs in music licensing, exceptions have been made for PROs. A PRO can offer a single performance rights license to a user or distributor for all the works controlled by multiple publishers – one-stop shopping for a huge number of works. But because one entity is nevertheless coordinating business transactions for a large group of companies that should be competing, antitrust oversight remains necessary.

Far from Washington or any other place associated with Internet policy-making, a federal district court in Jackson, Mississippi is considering a case that could dramatically alter the regulation of Internet speech. The case pits Google against the Mississippi Attorney General, Jim Hood, over the question of whether Hood can launch a sweeping investigation of Google after the search provider declined to block websites at Hood’s discretion, absent any court order.

Some background: Among the leaks that resulted from the 2014 hack of Sony Pictures was the revelation of so-called “Project Goliath,” a secret initiative of major film studios and the MPAA. The project involved enlisting State Attorneys General (AGs) like Hood in taking up one of Hollywood’s “key issues and asks” since the spectacular 2012 failure of the Stop Online Piracy Act (SOPA): extra-judicial site blocking. As an article by The Verge makes clear, the funding of high-priced private law firms to ghost-write legal demands from AG Hood to Google was a major element of “Goliath.” (It’s like Uber, but for State AGs.) MORE »

We’re taking part in Copyright Week, a series of actions and discussions supporting key principles that should guide copyright policy. Every day this week, various groups are taking on different elements of the law, and addressing what’s at stake, and what we need to do to make sure that copyright promotes creativity and innovation.

Last week at the Future of Music Coalition blog, Casey Rae discussed how transparency is so crucial in the music marketplace. ([1], [2])

As Casey points out, marketplace transparency is a necessary (but not sufficient) condition to ensure artists get a fair and competitive deal.

Digital services have similar needs. Just as artists need accurate and reliable information to know they are receiving a square deal, music delivery services need accurate and reliable information to know what they can play, and what they’ll have to pay, and to whom. Most (but not all) participants benefit from a more transparent marketplace.

As Jon noted on Friday, the Supreme Court invited the views of the U.S. Solicitor General on whether to hear the Oracle v. Google case. This suggests the Court is far likelier to review the Federal Circuit’s decision regarding copyright, interoperability, and the Java APIs (previously discussed here).

The Solicitor General (SG) coordinates the U.S. Government’s litigation before the Supreme Court, and the Court from time to time will invite the SG’s views on whether to take a case. Roughly a dozen times a year, the SG is asked to file such briefs, in an order referred to by Supreme Court wonks as a “CVSG order” (which calls for the views of the Solicitor General).

Empirical evidence suggests that (a) this bodes well for the petition, and (b) that the substantive views of the SG can be influential.

As noted in our two preceding posts about the introduction of the “ancillary right” in Spain (here and here), Google announced it would discontinue operation of the Google News product in Spain, starting tomorrow, December 16. (Wired UK cites a potential fine of up to €600,000 (~$746,000) for non-compliance after the January 1 deadline.) In a statement, the Spanish Government shrugged off the company’s response to the “so-called Google tax” as a “business decision.”

Google’s decision surprised no one save perhaps the Spanish news publishers’ association (AEDE). Responding to the announcement, the AEDE released a statement last week arguing that Google had a dominant position in the news market, and demanded that it not be permitted to exit the market. Note that the data doesn’t seem to bear this assertion out; relying on data from Similarweb.com, it appears Google.news.es ranks 226th in Spain, miles behind Elpais.com at 16th, and elmundo.es at 18th. If one limits the data strictly to news media, Google News Spain is still bringing up the rear (at 26th) behind yahoo.com (1st), elpais.com (3rd), msn.com (4th) elmundo.es (5th), and abc.es (7th).

In any event, the association’s about-face epitomizes its love-hate relationship with news search and aggregation: its members love the free traffic that they drive to publishers’ ads, but hate that news search providers and aggregators don’t pay for that privilege.

As Jakob explained yesterday, the recently enacted “ancillary right” law in Spain is prompting Google News to fold up shop there; it will cease displaying Spanish publications and Google News Spain will exit the market on December 16.

The ancillary right fad is but one of several protectionist measures recently launched in European states that extract rents from or restrict market access to technology companies — companies which are often U.S.-based. (Another example is the misguided “right to be forgotten.”) This particular Spanish law, set to go into effect in 2015, has been criticized as “ill-conceived” and even “mercantilist.”

While any protectionism should be a cause for concern, this particular instance of heavy-handed regulation merits attention because it so conspicuously violates existing international trade law. By adopting the ancillary right levy, Spain has broken with clearly established law and the international community.

Yesterday Billboard reported on research by Pandora finding that music played on the service experienced increased sales. The study found that, on average, sales increased between 2.31% and 2.66% for music played on the Pandora service. The effect apparently grows with more spins. That is, the more frequently a song was played, the likelier listeners were to purchase the track or album. This data doesn’t even reveal all of the promotional value of the service: to what extent does it lead to concert and merchandise sales, for example? The takeaway, however, is that digital radio play drives sales, in a quantifiable way, which artists can now analyze at an increasingly granular level.

The findings are consistent with observations made in music producer Steve Albini’s recent, colorful keynote at the Melbourne, Australia “Face the Music” conference. Albini said:

“It’s no longer necessary to pay people to pay other people to play your records on the radio, only to have those people lie about doing so. It’s no longer necessary to spend money to let people hear your band.”

Albini also lauded that the Internet facilitates a “direct relationship” between fans and artists that “skips all the intermediary steps.” Nevertheless, while artists can now reach audiences directly, existing contractual arrangements and the legacy of industry structure limits the extent to which artists can be compensated by audiences directly. Thus, as DisCo has noted before, while music services drive sales and pay out the vast majority of their revenues as royalties, those royalties are far more often paid to intermediary rights-holders, and the majority of the revenues don’t reach the artist.

Transparency problems aside, the fact that digital services represent the future of the music industry is increasingly hard to ignore. Yesterday’s N.Y. Times reported a Sony Music estimate that in four years, streaming and subscriptions would constitute 60% of the music industry’s digital revenue, up from 18% now. Sony executive Kevin Kelleher claimed to be “very encouraged with the paid streaming model”, while questioning the value of ad-supported models.

Yet digital services are rising to such prominence in the marketplace that, at least in Europe, Spotify appears to have overtaken iTunes in generating royalties for artists. Given this data, combined with continued growth in legal digital music consumption (music listeners streamed more than 118 billion tracks in 2013), it is hard to understand commentators still suggesting people won’t pay for music. YouTube, of course, is just launching its Music Key product, betting exactly the opposite. Nevertheless, like Pandora and Spotify, Music Key keeps with the conventional wisdom that “having a free tier [i.e., ad-supported] as a springboard to get people to pay is key to winning members.”

In another example of Internet services investing greater resources in protecting content online, Google announced various changes today to search results involving movies and music. Even as News Corp’s James Murdoch was complaining that Google was not doing more to fight piracy, the search provider was announcing further actions to fight piracy, detailed at length in its updated “How Google Fights Piracy” report.

New developments include Google’s testing of a new ad format to appear directly beneath its search box, which will point users to lawful, authorized platforms for content in the search (assuming, presumably, that there are any). It has also created a new right-hand panel in search results that points to various options as well. The company is also tweaking its algorithm to further downrank sites that receive high numbers of DMCA notices, and further limiting what terms and results might appear in “autocompleted” queries. MORE »

About DisCo

The Disruptive Competition Project (DisCo) is a project to promote disruptive innovation and competition to policymakers. Plenty of other groups in DC defend incumbent industries and protect the status quo; DisCo brings together experts to explain how disruptive change in the modern economy promotes growth and advances our society.
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Among the most powerful moments of Selma, the new film about the march Martin Luther King, Jr. led in 1965 in support of voting rights for African Americans, are the speeches, sermons, and eulogies King delivered during that tumultuous period. However, the speeches performed by actor David Oyelowo in the film do not contain the actual words spoken by King. This is because the King estate would not license the copyright in the speeches to filmmaker Ava DuVernay. Thus, the King estate’s aggressive stance on copyright has literally forced the re-writing of history.READ MORE »